Envoi becomes the latest member of the Frontier Energy NetworkOn the welcoming of Envoi as the latest Corporate Member of the Frontier Energy Network, Frontier invites Envoi's Managing Director Mike Lakin to share his thoughts on the direction of travel for E&P globally against the backdrop of energy transition and his thoughts on the most attractive projects on the horizon for the possibly new and last cycle of E&P globally.
Join Envoi as a Corporate Member of the Frontier Energy Network to open doors and plug your team into the best opportunities on the market being showcased by Envoi and members globally.
By Mike Lakin, Managing Director, Envoi
It has been perceived well before the COVID related commodity price crash that the demand for hydrocarbons after six years of downturn in the upstream sector would, in the end, result in a new and perhaps the last cycle of the E&P sector.
The Energy Transition that will change the energy mix to bring about this last cycle does bring to mind the old idiom that the “cart is before the horse”. That is to say that compared to previous transitions over the last few centuries (from say wood to coal and then to oil and gas), when a single new, readily available and more effective source of cost-effective energy was available to replace the last. This is not the case this time. Solar and Wind are becoming more available and can be cheap when the sun shing and wind blowing, but as California experienced in the Summer and more recently Texas in an unexpected cold spell, having sufficient capacity at current rates of installation and the ability to increase to match demand surges are not certain. Rather than transition, Peter Dolan has suggested the Energy Transition is more of a ‘rebalancing’ of the energy mix than a simple switch off of hydrocarbons. In this regard, gas is the obvious available and cost effective ‘fuel of transition’ with lower carbon intensity and greater ESG compliance until new, even less emissive, fuels are found. Arguably, nuclear offers a guaranteed and emission free source of long term power if ever the emotion justifiably caused by historical events can be overcome by confidence in safe new technologies.
Equally by its very name, ‘transition’, does not mean a ‘switch off’ of hydrocarbons. Over the last two years of it being obvious to many of us in the upstream sector, it is being finally noticed more widely that a material supply gap of the oil and gas resources the world depends upon will develop, due to the last 6 years of almost zero new E&P investment in their replacement. Rystad have now published three articles on this and likely to show its head mid 2021. The short termism of most investment decisions likens itself to another idiom where they have “woken up and smelt the coffee, but long after it’s not only cold, but gone stale”!
It’s never too late though and although the industry is far less able to react to the looming undersupply which will take years to rebuild (enhanced by the crew change and legacy of the 1984-2003 crash and its generation loss of G&G expertise), there is also now clear evidence that the E&P sector is also realising they may still be needed. As the Majors go net zero, they will be shedding peripheral non-core assets available for a new flock of small and midcap E&P companies to emerge (e.g. the takeover of Sterling Resources by industry E&P veterans with a new vision). If the recent increases in commodity price and the prediction of new post US$ 100 /bbl prices due to undersupply do indeed kick in, the markets are likely to wake up to the fact that there are new profits to be had. The excuse of ESG not to invest will then likely turn and become the new reason to re-invest albeit in low ESG intensity projects.
Some are already ahead of the curve. Interest in the range of Envoi’s 3rd party projects has grown quite rapidly since Q4 of 2020, particularly those opportunities in the ‘Hot Spots’ where recent discoveries have opened up new play opportunities.
- Suriname’s Shallow Offshore Bid Round: 13,500 km2 of under-explored shallow acreage that sits in the migration pathway of proven billion bbl resources.
- South Africa: Shallow and deep water prospectivity unlocked by 3D reprocessing with potential on strike with the massive Brulpadda and Luiperd gas discoveries.
Opportunities in proven producing basins which offer near term cash flow and lower risk exploration are also showing renewed interest and include:
- Cameroon: Short cycle appraisal / development of a small but commercial resource, with analogue upside in the hydrocarbon rich Rio Del Ray Basin, on the eastern edge of the Niger Delta play. Also with potentially giant undrilled deep billion bbl / multi-Tcf upside play potential proven by fields onstrike in the region as upside.
- UK North Sea: including
- The Central North Sea’s ‘low risk’ K2 Prospect which sits undrilled between proven producing fields including the large analogue Everest field
- Shelterstone Discovery: Undeveloped Viking Graben discovery found unexpectedly whilst appraising the Brae East field that now requiring appraisal. One of the wells flowed on a short test that was simply not known about until the G&G research uncovered it!
Slightly less obvious but very prospective for those with the foresight:
- Mongolia: The appraisal and development of the extension of a proven play and producing field and new discovery immediately across the border from China with immediate pipeline access to that insatiable market
- Cuba: Extension of the productive northern thrust and fold belt trend, undrilled due to its exclusion by some and a play that would have been exploited years ago had it been elsewhere in the world, but remains a fantastic opportunity for those that can
- Kazakhstan: Development of an existing discovery with near term cash flow to test a deeper and much bigger prospect with analogue prospectivity in the highly prolific Caspian fairway. A partner of choice with western values and established in-country
Then you have more well-defined frontier projects which could become the future ‘Hot Spots’ and in the current market can be tested at low cost and include:
- Jamaica: Large underexplored frontier basin potential being unlocked by new 3D and regional understanding
- Zimbabwe: Large new totally undrilled African rift potential, with both Palaeozoic and Mesozoic play analogues to other proven East African plays. Close to existing infrastructure and access to the big South African market facing near-term supply shortages.
Then there are the new energy projects offering more ESG compliant opportunities including:
- Germany: Geothermal opportunity to join a series of projects near to proven geothermal in the Bavarian pre-Alp Molasse play, with a guaranteed 20 year geothermal power tariff capable of generating impressive annual returns. The perfect fit for an E&P company’s diversification where drilling for water is not far different from drilling for oil and gas!
To learn more about Envoi's active projects visit envoi.co.uk/activeprojects.
Only time will tell if the predicted new E&P cycle materialises but looking at the facts the maths of supplying the Worlds future energy needs in the near and medium term suggest Energy Transition is simply not possible without both existing and significant new resources of oil and increasingly gas (i.e. the fuel of transition). Now is the time to invest in new projects before the rest of the market wakes up and brews a new pot of coffee!
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